The Company in a Nutshell
- ITW continuously invests in new products and holds over 17,000 granted and pending patents.
- The company is a Dividend King with over 50 years of consecutive dividend increases.
- ITW focuses on an 80/20 management method, enabling it to scope out great business opportunities.
Date Reviewed | 8/23/2024 |
Company Name | Illinois Tool Works Inc |
Symbol | ITW |
Sector | Industrials |
Industry | Specialty Industrial Machinery |
Beta | 1.11 |
PRO Rating | 4 |
Dividend Safety | 4 |
Business Model
Illinois Tool Works Inc. is a global manufacturer of a diversified range of industrial products and equipment. The Company's segments include Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products, and Specialty Products. The Automotive OEM segment produces components and fasteners for automotive-related applications. The Food Equipment segment produces ware washing equipment, cooking equipment, refrigeration equipment, food processing equipment, kitchen exhaust, ventilation and pollution control systems and others. Its Welding segment produces arc welding equipment and metal arc welding consumables and related accessories. The Specialty Products segment offers conveyor systems and line automation for the food and beverage industries; plastic consumables that multi-pack cans and bottles and related equipment; airport ground support equipment; components for medical devices, and others.
Current price | 257.98 |
ROE | 96.95 % |
ROIC | 31.20 % |
Shareholder Yield | 0.05 % |
5-Yr Total Return | 82.50 % |
1-Yr Total Return | 8.90 % |
Next Earnings Date | 10-22-24 |
Latest Quarter Information
What the CEO said:
“Looking ahead, we are lowering the top-end of our full year GAAP EPS guidance to reflect current levels of demand partially offset by better margin performance. We remain focused on managing and investing for the long-term as we build above-market organic growth, fueled by customer-back innovation, into a core ITW strength,” O’Herlihy concluded.
What we say:08-21-2024, Illinois Tool Works reported a mixed quarter as revenue declined by 1%, but EPS jumped by 5%. The revenue decline in revenue was driven by softer demand in certain segments, notably in Welding, Test & Measurement, and Construction Products. Sales by segments: Automotive OEM flat, Food Equipment +2.5%, Welding -5%, Specialty Products +7%. ITW recorded a significant improvement in its operating margin, which increased by 140 basis points to a record 26.2% for the quarter. Operating income also grew by 4.5% to $1.05 billion, marking a record for the second quarter. ITW offered a 7% dividend increase, congrats!
Investment Thesis
If an investor is looking for a stable and well-diversified industrial stock, ITW may be a great candidate. The company covers 7 different segments with similar sales volumes and margins. This means that no matter which sector is down, ITW will have growing sectors among its divisions. ITW has built a strong entrepreneurial culture within its business, where most divisions are encouraged to shoulder initiatives as long as they follow set protocols. ITW has been able to improve its margins over time by focusing on its most important customers and simplifying product lines; initiatives such as these will prove fruitful over time. We believe that ITW has some room to grow, as the automotive OEM segment should be supported by improvements in the semiconductor supply chain. ITW’s dividend triangle remains strong even if there is a slowdown due to the overall economic environment.
Dividend Triangle
5-Yr Rev. Growth | 1.75 % |
5-Yr EPS Growth | 5.10 % |
5-Yr Div Growth | 8.75 % |
Potential Risks
The market is concerned about the lack of revenue growth over the past 10 years. Although the situation has improved as of late, the company is not out of the woods yet. The company has had difficulty posting robust organic growth, with it being at only about 1-2% over the past decade and remains dependent on its acquisitions to generate further growth. As we are in a global recession, this problem may resurface this year. The stock price has been under pressure lately, mainly moving with the overall market; the good news is it is close to our DDM. The biggest problem here is the lack of growth vectors. ITW is a resilient business, but sales will follow industrial cycles.
Dividend Growth Perspective
The company more than doubled its payout over the past 5 years and has over 50 years of dividend growth history, which is impressive, but an investor shouldn’t expect such growth rates going forward. Both payouts are under control and management seems to be committed to sharing the wealth with shareholders. However, one can see ITW only increasing its payouts by a high single-digit rate for several years. In August of 2023, the company announced another generous increase of 6.9% (from $1.31/share to $1.40/share). This year, ITW offered another 7% increase and jumped the dividend to $1.50/share.
Dividend ($) | 6 |
Dividend Yield Fwd | 2.35 % |
Dividend Frequency | Quarterly |
Average 5-Yr Yield | 2.20 % |
Payout Ratio (%) | 55.25 |
Cash Payout Ratio (%) | 58.45 |
DGR 1-Yr | 6.85 |
DGR 3-Yr | 7.05 |
DGR 5-Yr | 8.75 |
DGR Streak | 60 |
Chowder Score | 11.15 |
Next DVD PMT | 10-11-24 |
Valuation
Recent Annual Dividend Payment | $ 6.00 |
Expected Dividend Growth Rate Years 1-10 | 7.00% |
Expected Terminal Dividend Growth Rate | 6.00% |
Discount Rate | 9.00% |
Discount Rate (Horizontal) | |||
Margin of Safety | 8.00% | 9.00% | 10.00% |
20% Premium | $ 416.14 | $ 276.51 | $ 206.74 |
10% Premium | $ 381.46 | $ 253.47 | $ 189.52 |
Intrinsic Value | $ 346.78 | $ 230.43 | $ 172.29 |
10% Discount | $ 312.10 | $ 207.38 | $ 155.06 |
20% Discount | $ 277.42 | $ 184.34 | $ 137.83 |
Market Cap | 75 B |
PE Ratio | 24.80 |
Fwd PE | 23.80 |
Price to Book Ratio | 25.35 |
DDM Valuation | 230.43 |
Average 5-Yr PE | 25.63 |
Value Score | 33 |
- All financial metrics are updated weekly.
- The DSR PRO rating and Dividend Safety Score are updated quarterly.
- The analysis (investment thesis, risk potential, dividend growth perspective and DDM calculation) is reviewed every 6 months.
- The PDF format includes only comments (no metrics) and is reviewed every 6 months.